The impact of financial development on environmental sustainability: A European perspective

Baochang Xu, Sihui Li, Ayesha Afzal (), Nawazish Mirza and Meng Zhang

Resources Policy, 2022, vol. 78, issue C

Abstract: This research aimed to analyze the impact of financial development on environmental sustainability. Data was collected for 34 countries in Europe, covering the period from 2000 to 2020. Data analysis was conducted using the Feasible Generalised Least Squares (FGLS) model, a random-effects model (specified by the Hausman test), and the Generalised Method of Moments (GMM) approach. It was found that lending rates are negatively related to CO2 emissions per capita, total CO2, and CO2 by the transport industry. It was also found that bank credit to the private sector increases total CO2 emissions and CO2 emissions from the power and transport industries. This study found that domestic credit to the private sector increases total CO2 emissions. An important implication of these results is that borrowers should be selected and monitored using more stringent criteria to ensure compliance with environmental requirements. This study has made multiple contributions. It has extended knowledge about how the financial sector impacts the environment. It has used two models that can handle issues of collinearity and heteroscedasticity. Its findings are useful for understanding the financial development-environmental health association in this unique COVID-19 pandemic context.

Keywords: Financial development; Environmental sustainability; CO2 emissions; Credit; Lending (search for similar items in EconPapers)
JEL-codes: F64 O13 O16 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:78:y:2022:i:c:s0301420722002628

DOI: 10.1016/j.resourpol.2022.102814

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